The Internal Revenue Service lets taxpayers deduct a variety of common annual expenses on federal income tax returns to reduce taxable income and the total amount of tax owed. Home mortgage interest counts as a tax deduction on your federal income tax return, but the write-off is subject to rules and conditions that can limit the size of your deduction.
Mortgage Interest Deduction Basics
The IRS lets you deduct interest paid on up to $1 million of home acquisition debt. Home acquisition debt describes loans secured by your home that you took out to buy, build or substantially improve the home. A substantial improvement is a renovation that adds to the value of your home, extends the useful life of the home or adapts the home for new uses. The deduction is limited to $500,000 of home acquisition debt if you file your tax return using the status "married filing separately."
The mortgage interest deduction is an "itemized deduction." When you file your income tax return, you have to choose between claiming a standard deduction or claiming the sum of your itemized deductions, which include expenses like property taxes, home office expenses, charitable donations and business travel costs. If your standard deduction is greater than all of your itemized deductions, you won't benefit from claiming a deduction on your mortgage interest. The standard deduction is $6,100 for single taxpayers and $12,200 for joint filers for the 2013 tax year.
The mortgage interest deduction applies to interest paid on your main home and a second home. A second home can be a traditional home, or it can be an RV, mobile home, boat or similar property with cooking, sleeping and toilet facilities. You can only claim mortgage interest on one second home regardless of the number of vacation properties you own.
Home Equity Debt
It is possible to borrow against the value of a home by taking out a home equity loan, home equity line of credit or reverse mortgage. Home equity loans are also known as second mortgages. Regardless of what it's called, interest paid on up to $100,000 of home equity debt is tax deductible on your federal income tax return.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.